Pay attention folks, I don’t often give you stuff thats not completely obvious and not available everywhere else. Today, I proudly present to you the cycle of VAR. There are three distinct stages: startup, profitability, outsourcing and the ability to profit at every stage if you do it right.
Stage 1: Startup: The Porn Actress
We’ve all heard the sob story before, “I was young, I needed the money…” and so goes the story of every startup that did not get VC seed money to do things right. When you’re broke, or when you’re just starting to get clients, you’ll take on any line of business you can. Some people do a respectable job of sticking in with their profession (selling web hosting, doing web design, Internet broadband, etc) and some go off the deep end and start selling coffee, satellite dishes, alarm systems, surveillance cameras and so on.
Initially you don’t make a whole lot of money but you live on the entrepreneurial dream of recurring revenues: “I have a few customers now, if I only add one a week or one a month I will be in great shape in a year” and if you stick with it, certainly, you will. After a while you start turning a profit or at the very worst its something that keeps the lights on.
But that’s usually not enough……
You see, the young naive girl stage only lasts so long until you figure out what your value proposition is. Yes there are books and seminars and workshops and bootcamps and all sorts of sold you a dream clubs but if you’ve never been in sales, you aren’t going to move those managed services or the HP SANs as much as the (better) sales person told you. This is the inflection point.
Startup stage has an inflection point at which you either stick with your plan or get distracted with the momentary financial opportunity of your supporting services.
If you stick with your business plan, you might make something out of it.
If you don’t, you end up with the bright idea that you can make this venture more profitable. This is where most people fail.
Indeed, in the startup stage it is difficult to turn away money, it is difficult to sacrifice an immediate opportunity for the long term vision of the company. Let’s say your vision was selling managed services, yet somehow you were making a ton of your money from ExchangeDefender? What do you do? Stick with managed services or try to cut the cost of ExchangeDefender by doing it yourself?
Stage 2: Profitability: The Genius Employee
I’m intimately familiar with this stage because I used to be one of “the genius employees” and ended up costing the employer 10x what it ought to have spent. In retrospect, they were idiots for trusting a high school kid to build their control panels but I digress.
The Genius Employee is the internal employee that has figured something out, something not immediately obvious to his coworkers. He has figured out how to replace the vendor with a competitive product and some elbow grease.
This is where all VARs fail, with perfectly sound judgment and perfectly normal data. Here we have a product XYZ which is perfectly comparable to product ABC, and ABC can be provided by us with some tuning. So, I have this $11/hr kid that I can make build my solution, I can bring it in house and triple my profits! Hey, George, say we did what you propose, how much time would it take?
Here are some traits of the genius employee:
What’s not to love? Well, the combination is a recipe for a perfect storm when the genius employee realizes there is something more fun out there, or something less difficult.
Less difficult? Here is the gods honest truth: If it were easy, we’d all be doing it, you’d be doing it already, and there would be no large rich companies entering that business.
What the genius employee fails to consider in his proposal, because he has no experience at all, is the fact that the most difficult part of infrastructure management is not the configuration and setup – its the ongoing maintenance. The upgrades. The migrations. The support for when things break above your head. Now, look up at the traits listed in the blue box above: Do you think the know-it-all genius employee would be savvy enough to admit that he is way in over his head and call for support? What if it was an open source program and there was no support for it?
These problems can only go for so long, because initially the profits are great people stick with the problem for far longer than they otherwise would. But, as they are bleeding to death, dealing with customer complaints about a product they have no control over, rely on one genius employee for it all who is not accustomed to criticism.. well, things break.
Stage 3: Outsourcing: Bring The Savior
Stage 3 is where the business owner is tired of playing games and wants to get back to his core business while drawing as much money from the resold product as possible. Maybe the managed services took off, maybe ExchangeDefender has a new feature or lower costs, maybe the genius employee left or got fired, maybe the company got a lot of money…
…. but regardless of which it was and why it happened, the VAR business owner comes back to the basics and the vision of the company and wants to get rid of the distractions. This is the inflection point where the genius employee and the naive porn actress get fired or get assigned to what they were originally meant for – running the core of the business.
So why did I tell you this…
Naturally, to discourage you from doing it on your own, nothing like a biased self-motivated blog posting. And if you saw it that way you never would have made it to this paragraph so since you’re actually reading this, there might be hope for you yet. Hint: I did not write this to discourage you, the odds of us looking to take a few dozen web sites would cost us more in labor than we could make on it in 8 years of service. For most distractions, usually, there is no savior. There is just hope that you can sell it to someone else and pass the bucket to them when people ask for more support.
The secret to making it in the IT Solution Provider business is knowing what solution you intend to provide. The secret is not getting distracted by other temporary opportunities which are just that – opportunities – but not a cause to make them complete line of business that you will one day have a nightmare of a time getting rid of as they blemish your reputation. I am here to tell you that yes, you can keep your lights on, but you can do it without becoming GoDaddy.
Look at your business plan. Why did you start the business in the first place? Focus on that. Yes, its hard, yes it’s difficult, yes it’s expensive and yes… anything worth doing is not going to come to you easily – thats why you don’t work for minimum wage at McDonald’s.
Be in control but retain control. There is a difference, and it is one that I see people fail in all the time. I see you all at the trade shows, looking all googly-eyed at the sales guy thats pitching you a truckload of shit just to get you signed for life and take your money _now_. This is no different than the midnight infomercials, most people don’t fall for them but they all fall for it in IT for some reason. If a vendor is telling you that you will make a ton of money over time, they will not ask you to pay for it all up front. That needs to be repeated. IF A VENDOR IS PROMISING YOU THAT YOU WILL MAKE MONEY WITH THEIR SOLUTION IN THE LONG TERM THEY WILL NOT ASK YOU TO PAY FOR THE WHOLE THING UP FRONT. What is the logic of drowning the reseller in debt at their starting stage if the solution is actually that valuable? Think about it, wouldn’t be in their best interest to give you as much disposable income for advertising and staff so you can buy more and more of their licensing as you invest in the growth of your company? Please read this paragraph again, repeat until you can agree with it.
For example, most of the people that tried to be MSPs in Orlando are no longer, at least not to the extent they thought they would be. A year ago, people were MSPs. Today, “we are trying to do the MSP” thing. Tomorrow… well, thats up to you. But to get to tomorrow you need to be aware of The Cycle of VAR and control yourself from being too opportunistic to the point that you abandon your very business plan. Remember, it takes time. There is no such thing as turnkey, unless you’re comfortable selling hot dogs in a gstring bikini.
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